Paraguay industry: New mining frontier

Little-known Paraguay, a country with no history of large-scale mining, could be on the verge of becoming a major mineral producer. The discovery of a huge deposit of ilmenite, a titanium ore, combined with Paraguay’s abundant energy supplies, could jump-start the industry and convert Paraguay into a leading global producer of the metal. This would also have major implications for the country’s medium-term economic growth prospects.

In an announcement that took industry observers by surprise, renowned US geologist David Lowell recently unveiled the discovery of the titanium deposit—a strong metal used in products ranging from high-tech airplanes and space vehicles to surgical implants and phones—between the municipalities of Minga Porã and Katueté in the departments of Alto Paraná and Canindeyú in north-east Paraguay. The location is around 100 km from the Itaipú hydroelectric dam near the city of Ciudad del Este and no more than 40 km from the Brazilian border.

Mr Lowell has made multiple important mineral finds in his career, including the 1981 discovery of Chile’s La Escondida, the world’s largest copper reserve. In Paraguay, Mr Lowell's company, Vancouver-based CIC Resources, controls exploration rights to at least 185,000 hectares through his locally incorporated exploration company, Metálicos y no Metálicos del Paraguay.

Industry specialists estimate the find to contain 20bn tonnes of ore, easily comparable in size with the world's two largest ilmenite mines, one in Quebec, Canada and the other in Norway. It could even be the largest such deposit in the world. Initial reports estimate potential annual production of 5-10m tonnes over 100 years.

Top world producers of ilmenite

Tonnes, 2007

Canada

2,500,000

Australia

2,339,000

South Africa

2,248,000

China

1,300,000

Norway

882,000

India

730,000

Vietnam

650,000

Ukraine

600,000

World total

12,400,000

Source: British Geological Survey.

Revamping regulations

Paraguay has been issuing more licences and moving to revamp its regulatory framework to pave the way for a mining boom. In recent years, the government has awarded a growing number of exploration permits. By the end of October, the government had issued eight mining concessions and 14 permits for prospecting or exploration activities, and there were more than 75 permit applications in the pipeline.

Further, in September 2010 the lower house of Congress approved a bill to strengthen mineral claims and bring mining legislation more in line with the laws elsewhere in the Latin American region. According to Juan Antonio Denis, head of the mining and energy committee in the Chamber of Deputies, this was a result of pressure from Mr Lowell, who had questioned the outdated nature of the existing mining legislation (Law 3180 of 2007).

The more industry-friendly mining bill aims to cut red tape and extend the time limits for prospecting and exploration permits. Today, prospecting permits are valid for one year with the possibility of a six-month extension, while exploration permits are good for two years with the possibility of a one-year extension. This bill extends the deadlines so companies have more time to finish their work. The proposed legislation is now under consideration by the Senate.

Economic booster

If confirmed, the ilmenite discovery could transform Paraguay’s economic prospects, promoting faster growth and diversifying the economy from its traditional dependence on agriculture. It could also encourage further exploration for other metals, including uranium.

The proximity of cheap energy from the binational Itaipú hydro plant, which Paraguay owns jointly with Brazil, would greatly reduce the operating costs of the energy-intensive processing of the ore, and thereby enhance the viability of developing the deposit. After mining the ilmenite (typically having a 45-50% titanium dioxide, or Ti02, content), transport costs to a smelter powered by Itaipú would be extremely low by international standards. The smelter would produce the enriched “slag” (with a Ti02 content of 75-90%).

Iron oxide is an important by-product of the titanium smelting process. The revenue stream is usually split on a 2/3-1/3 basis between titanium dioxide and iron oxide. During the 2008 surge in the global iron price, the ratio reached 50%-50% but is now moving back towards the normal ratio.

A new electricity transformer is currently being constructed alongside Itaipú on the Paraguayan side of the Paraná River. This will greatly boost Paraguay's capacity to utilise its 50% share of the power produced by the dam, most of which is still being sold to Brazil at a rock-bottom price. By allowing access to 7,000 MW of capacity (at present Paraguay can only access 1,350 MW of power compared with Brazil's access to 12,000 MW) the transformer will provide ample power for an energy-intensive smelter.

Link with aluminium smelter

Of added significance, there is now an opportunity for major synergies in Paraguay for Canada-based RTA, which is a global leader in the mining and smelting of both aluminium and titanium. RTA is already in advanced negotiations with the Paraguayan government for the construction of an aluminium plant close to Itaipú, which would use imported bauxite as feedstock.

In early October the foreign minister, Hector Lacognata, visited RTA’s headquarters in Ottawa where CEO Patrick Tobin presented him with a project for the construction of an industrial park for the development of local subsidiary aluminium industries as a complement to the planned smelter investment. In late October Paraguay’s vice-president, Luis Franco visited RTA aluminium plants in Canada. On his return he said that RTA wished to sign an agreement with the government for the investment by May 2011, the bicentennial of Paraguay’s independence. Construction would start in 2014 and be completed within two and a half years. Some 14,000 jobs would be created.

At a November 29th meeting with President Fernando Lugo, RTA representatives raised their initial December 2009 projection of a US$2.5bn investment to US$3.5bn, and hiked their annual production estimate from 480,000 tonnes to 670,000 tonnes a year. The aluminium plant would use green technology, which they said would give it the lowest carbon emissions in the world. The energy demand for the plant's operation was also raised—from 800 MW to 1,100 MW, close to the supply that Paraguay currently takes from Itaipú (1,350 MW).

If agreement can be reached over the sale price of bulk energy from Itaipú to RTA, the smelter could begin production in 2016. RTA is also the major world producer of titanium dioxide, accounting for 35% of the 6m Ti02 units of global annual feedstock production. So important are power costs that RTA is currently shipping high-grade (60%) ilmenite ore from its new mine in faraway Madagascar to its hydro-powered smelter at Sorel-Tracy, near Montreal. There would be no such energy or transport problems in Paraguay.